Sweating for fashion

Labour comes cheap, and will get cheaper still

NOT all publicity in the fashion world is good publicity, which is why the Tommy Hilfiger website has a section called “Global Labour Practices” and why Gap Inc, the umbrella group for the Gap, Banana Republic and Old Navy, has a section coyly called “Social Responsibility”. Like virtually every other retailer and clothing manufacturer, they face the charge of profiting from sweatshop labour in developing countries. Nike, for example, has been accused of using child labour in Cambodia; Adidas of using prison labour in China; Benetton of using child workers in Turkey. Only the luxury end for the most part escapes such criticism: a Hermès bag really is made by hand in France, and Moschino dresses really are made in northern Italy.

But then the luxury brands can afford to use high-priced labour in their home countries. Less exalted labels (and, indeed, some of the cheaper “diffusion” lines of the top brands) cannot. At the top end of the market the commercial arithmetic allows a certain amount of leeway: designers like Proenza Schouler set a price for Barneys which is double the cost of their labour and materials; Barneys then sells to the shopper at about 2.6 times the price it paid to Proenza Schouler. Because the shopper is willing to pay up to $2,000 for her dress, everyone is happy. Go downmarket from Barneys, however, to the Gap and Macy's in America, or to Top Shop in Britain, or Printemps in France, and what counts most for the shopper is often price. Hence the competition by retailers and manufacturers to find the cheapest supplier, which means the cheapest workers.

Just how cheap would doubtless shock most of the buyers of the end-product. A sewing-machine operator in Bangladesh, for example, is entitled by law to a minimum monthly salary of $18.53, which would buy half-a-dozen caffè lattes at a Los Angeles Starbucks. In Honduras a worker in an export industry is entitled to $139 a month. In China's Guangdong province the minimum monthly wage is $63.75, supposedly bolstered by subsidised board and lodging for the thousands of young women who flock to Guangdong's factories from China's poorer regions.

When you compare those levels with the American minimum wage of $893 a month for a 40-hour week, it is not surprising that so many American companies have moved their production abroad. After 150 years in business the Levi Strauss company, for example, no longer makes its jeans in America: unable to afford workers earning $12 an hour, it closed its last American plant in January. Yet as recently as the 1980s Levi's had more than 60 factories in the United States.

Those cost pressures are not confined to American companies. A recent study by France's CEPII, an economic think-tank, calculated that the labour cost of making a shirt in France for the French market would be just over half of the total cost (see chart 4). If the shirt were made in Portugal, the share would be just under half. But if the shirt were made in China, labour would account for only 28% of the total. Even with customs levies and transport, the shirt from China would therefore cost little more than half the shirt made in France.

Your money or your reputation

The problem for first-world companies seeking suppliers in third-world countries is that they risk harming their image—and so their sales. Last December the National Labour Committee (NLC), a New York-based group, accused Sean Combs of using a Honduran sweatshop to produce his Sean John T-shirts. Standing outside the site of the forthcoming Sean John flagship store in Manhattan, 19-year-old Lydda Eli Gonzalez, a former worker at the Honduran factory, said workers were paid just 24 cents for each $50 T-shirt; were limited to two toilet visits a day; had to do unpaid overtime; could not form a trade union; were forbidden to chat to each other; and were forced to take tests for pregnancy, HIV, diabetes and anaemia. Those who tested positive were sacked.

It is conceivable that Miss Gonzalez exaggerated. The factory-owner denied everything, and the Honduran labour minister described her allegations as “overblown”. Puffy said he would launch an immediate investigation, and sever all links with the factory if there was any proof of wrongdoing.

That would do no favours to the workers. The NLC recommends that companies from rich countries should persuade their foreign subcontractors to formulate and respect reasonable labour standards. Hence the Gap's code of “Social Responsibility”, which was introduced after the revelation by the NLC in 1995 that workers in Central America were earning only 12 cents for each $20 Gap shirt they made.

Now the Gap has more than 90 “vendor compliance officers”, often recruited from NGOs, to vet prospective suppliers and to ensure decent labour standards among current suppliers. Last year they conducted more than 13,000 inspections in 3,000 factories in 50 countries. “When we find a problem”, says a company spokeswoman, “we take action. In most cases, we'll work with factories to improve practices and conditions. But if they don't get better, we stop using them.” Last year that meant 120 factories were banned from doing business with the Gap.

So what, a cynic might retort. Those factories will cut their prices and get contracts with some other American or European company. The harsh reality is that there is already a “race to the bottom” in the competition to win contracts, and the pace is likely to speed up at the start of next year when members of the World Trade Organisation end their quotas on textiles and clothing. With imported garments then likely to be around 15% cheaper, rich consumers will have cause to smile. Not so the poor people who make the clothes.